An Integrated Analysis of the Association between Accrual Disclosure and the Abnormal Accrual Anomaly

51 Pages Posted: 12 Dec 2005

See all articles by Henock Louis

Henock Louis

Pennsylvania State University - Smeal College of Business

Dahlia Robinson

Arizona State University - School of Accountancy

Andrew M. Sbaraglia

Florida International University

Multiple version iconThere are 2 versions of this paper

Date Written: November 17, 2006

Abstract

We analyze whether the nondisclosure of accrual information at earnings announcements might contribute to the abnormal accrual anomaly. Prior studies draw inferences about the pricing of (abnormal) accruals at earnings announcements and around the filing dates through analyses of the long-term stock performance of high and low (abnormal) accrual firms. In this study, we take a more integrated approach by directly analyzing the pricing of abnormal accruals around the earnings announcement, around the SEC filing, and over the year subsequent to the SEC filing, conditional on whether a firm discloses accrual information at the earnings announcement. We find no evidence of accrual mispricing for firms that disclose accrual information at the earnings announcement. For these firms, the market is able to differentiate the discretionary from the nondiscretionary components of the earnings surprise. In contrast, as expected, the market fails to distinguish between the discretionary and the nondiscretionary components of the earnings surprise for firms that do not disclose accrual information at the earnings announcement. These firms experience a stock price correction around the filing date. However, the correction is only partial, resulting in a post-filing drift.

Keywords: Discretionary accruals, ERC, SEC filing, disclosure, mispricing

JEL Classification: G12, G14, M14, M43

Suggested Citation

Louis, Henock and Robinson, Dahlia and Sbaraglia, Andrew M., An Integrated Analysis of the Association between Accrual Disclosure and the Abnormal Accrual Anomaly (November 17, 2006). Available at SSRN: https://ssrn.com/abstract=785148 or http://dx.doi.org/10.2139/ssrn.785148

Henock Louis (Contact Author)

Pennsylvania State University - Smeal College of Business ( email )

University Park, PA 16802-3306
United States
814-865-4160 (Phone)
814-863-8393 (Fax)

Dahlia Robinson

Arizona State University - School of Accountancy ( email )

Tempe, AZ 85287
United States

Andrew M. Sbaraglia

Florida International University ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

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